NDA mismanaged Magnox contract, report says

01 March 2018

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Costly mistakes have caused "untold reputational damage" to the UK's Nuclear Decommissioning Authority (NDA), according to a parliamentary report published yesterday. The Public Accounts Committee (PAC) report also says that central government "must share the blame" for failures over a GBP6.1 billion (USD8.4 billion) Magnox contract that was terminated nine years early.

Cavendish Fluor Partnership (CFP) won the contract in September 2014 in a tender the NDA started in April 2012. This decision was approved by the then Department for Energy and Climate Change (DECC) and the Treasury.

NDA announced in March last year that it had decided to terminate its contract with CFP for the management and decommissioning of 12 redundant Magnox sites, including two research sites. In a written ministerial statement to the House of Commons on 27 March, Energy Secretary Greg Clark said there was a big difference between the contract with CFP and the work that is required. Clark also announced that the NDA had settled outstanding litigation claims against it by Energy Solutions and Bechtel regarding the contract award.

The PAC report concludes that the NDA "dramatically under-estimated" the scale and cost of decommissioning the Magnox sites, which ultimately led to the early termination of the 14-year contract with CFP formed by Babcock and Fluor. The NDA "should set out clearly to us how it will develop and maintain the right information on the state of its sites", it adds.

The NDA "completely failed" in both the procurement and management of the contract to clean up the Magnox nuclear reactor and research sites, which the committee said is one of the highest value and most important contracts let by the government.

"Not only did this disrupt an important component of vital nuclear decommissioning work, but it also cost the taxpayer upwards of GBP122 million. The NDA ran an overly complex procurement process, resulting in it awarding the contract to the wrong bidder, and subsequently settling legal claims from a losing consortium to the tune of nearly GBP100 million," the PAC report says.

The NDA will now have to put "even more effort and money" into finding a suitable way of managing these sites after the contract comes to an official end in September 2019, according to the report.

"If it is to be trusted with letting future contracts to clean up nuclear sites, it must have a proper understanding of the state of the sites before committing taxpayers’ money to a contract, and then it must also monitor progress closely," it adds.

These failures have caused untold reputational damage to the NDA and raise serious questions about its credibility as a strategic contracting authority, it said. But central government, meaning the former Department for Energy and Climate Change - must also share the blame, it adds.

"Not only did HM Treasury and the Department approve the NDA's approaches to procurement and contract management, but there are clear failings in the Department's subsequent challenge and oversight of the NDA, through UK Government Investments," it says.

UK Government Investments is the British government's centre of expertise in corporate finance and corporate governance.

Geoffrey Clifton-Brown, deputy chairman of the Public Accounts Committee said the NDA is entrusted with some of the most important work affecting health and safety matters in the nuclear industry, "but this sorry affair casts serious doubt on its ability to perform its role effectively".

He added: "From the design and execution of the procurement process onwards, the handling of the Magnox contract has been an appalling piece of mismanagement and financial waste. It is wholly unacceptable that some details of what took place should remain so murky - not least the NDA’s inability to fully account for some GBP500 million of taxpayers’ money paid to its previous contractor."

UK Government Investments was "simply too hands-off" in the management of the contract, he said.

An independent inquiry examining the Magnox contract is under way and both the NDA and central government say they are acting on its interim recommendations. The committee has asked to be shown "concrete evidence" of the progress being made with that inquiry.

Justin Bowden, national secretary for energy at the GMB trade union, has called for a "root and branch re-think" of the NDA.

"We need to cut out the middlemen and have this work done in-house to reduce costs and save the taxpayer money," Bowden said. "GMB believes a radical overhaul of the NDA is now required - it should be renamed the Nuclear Development Agency and move forward under a new role and remit."